AnnualReview. Advancing physical energy markets

Transcription

1 2016 AnnualReview Advancing physical energy markets

2 Letter from emstradepoint Dear Participants On behalf of emstradepoint I am pleased to present our 2016 Annual Market Review. In 2016 we saw continued growth for the emstradepoint exchange-traded volumes and market liquidity have both increased substantially since also saw us change our focus, and rather than putting all our efforts into development of the exchange or the product we put more focus on helping develop the gas industry, and our place in it. This hasn t been easy, but it has been a positive journey, and we believe we have now established a rock solid platform, alongside our industry partners, which the gas industry in New Zealand can use to flourish. By the numbers 2016 was a great year for trading on the exchange. We saw a significant uplift in traded volumes overall, and pricing has shown representative and healthy market signals, both in the short and long term. Due to the October 2015 implementation of market-based balancing, intraday volatility remained relatively high during the year. However, as the MBB mechanism has matured including the addition of an independent broker to support the market, the buy/sell spread of First Gas transactions has substantially narrowed. Traded volumes peaked in the first half of the year with a number of large monthly and weekly trades executed. By March we had already executed a trade volume of 1.7 PJ, with a total first half delivered volume of 2.0 PJ. The second half of the year saw lighter total volumes as forward trading tapered off. However, the on-the-day market remained liquid, with strong order volumes and narrow bid/offer spreads. Changes internal and external 2016 saw a number of big changes for emstradepoint both internal changes and external industry developments. In July 2016 we bid farewell James Whistler and Kristina Raba as they moved on to new opportunities. Needless to say, James and Kristina left big shoes to fill, but the new team consisting of Megan van Oosten, Bennet Tucker and myself has come rapidly up to speed and is ready for the challenges ahead. Happily, for the new team, James is still close by to provide advice James is leading ICAP s New Zealand and Australian gas brokering desk. The desk was established in August 2016, and provides an inter-dealer broker service to industry participants. This has proved to be an invaluable source of liquidity, especially in the forward products. Last, but certainly not least, First Gas kicked off the development of a Single Operating Code (for Gas Transmission). This is a major and positive piece of work that comes with great potential to move the industry forward. We look forward to supporting the First Gas team as they progress through this project is looking like being a big, challenging year for emstradepoint. We can t wait to meet the challenges head on, and look forward to working with industry participants to drive the New Zealand gas industry onwards and upwards! Quintin Tahau General Manager, emstradepoint 2

3 2016 IN NUMBERS > 3 PJ Traded > $18m Cleared > 4 PJ Traded > $22m Cleared First Gas GTAC development began (SCOP1) > 5 PJ Traded > $26m Cleared 2016 Q1 Q2 Q3 Q4 Q1 1.1 PJ delivered in Q2, highest quarter on record Launch of ICAP (NZ) brokering services PJ DELIVERED VOLUME $13.9m CLEARED $5.19/GJ VWAP 7,342GJ AVERAGE DAILY DELIVERY 35,000GJ PEAK DAILY DELIVERY p 65% YoY p 56% YoY q 5.4% YoY p 65% YoY p 37% YoY ORDER VOLUMES TRADED VOLUMES 30.2 PJ 2.7 PJ 7.5 PJ 20.6 PJ PJ TRADED VOLUME NGP-TRS (D) NGP-TRS (M) (W) NGP-TRS (M) 0.4 PJ 1.6 PJ Bids Offers Quarterly Results Summary Delivered Volume Delivered Value Delivery VWAP High Low CAL Q ,450 GJ $1,006,415 $4.31 $6.00 $1.50 CAL Q ,300 GJ $1,758,603 $4.92 $8.50 $1.00 CAL Q ,126,050 GJ $5,978,760 $5.31 $7.50 $1.00 CAL Q ,450 GJ $5,205,095 $5.36 $8.25 $0.94 CAL Q ,101 GJ $1,914,446 $5.45 $20.00 $2.00 CAL Q ,750 GJ $2,027,100 $5.53 $6.15 $4.80 CAL Q ,250 GJ $2,351,023 $5.55 $8.00 $4.75 CAL Q ,000 GJ $2,641,610 $5.42 $6.50 $4.65 All time 5,132,351 GJ $27,231,640 $5.31 $20.00 $0.94 3

4 Trading Growth 2016 proved to be a great year for the gas spot market, with Trading Growth continued meaningful growth in traded volume and market liquidity. The market has continued to grow and mature in spite of challenging fundamentals, and early signs indicate that this growth and maturity will continue into PJ was delivered across the year at a face value of $13.9m. This is an increase of 1.1 PJ from Daily delivery averaged 7.3 TJ/day, with a peak of 35 TJ delivered on 9 March. This is a 65% increase in average delivered volume compared to Overall, gas was delivered via the market on 308 days (84%) of the year. This is an increase of 56 days over The first quarter of 2016 saw a spike in trading with a number of large monthly strips traded. 1.7 PJ was traded in the first quarter of 2016, with delivery of these trades spread across the first half of the year. Trading tapered off in the second half of the year, 650 TJ was traded between July and December, nearly all of which was in the daily product. Trading has picked up again in Q with 707 TJ traded to date. Fig. 1: Cumulative Traded Volume 6,000 Fig. 2: Monthly Delivered Volumes 700 CUMULATIVE VOLUME (TJ) 5,000 4,000 3,000 2,000 1,000 VOLUME (TJ) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Fig. 3: Monthly VWAP, and Volume by Product Fig. 4: 2016 Daily Deliveries VOLUME (TJ) 1, $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $/GJ VOLUME (TJ) $- Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 NGP-TRS (D) NGP-TRS (W) NGP-TRS (M) Monthly VWAP - Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Daily Volume (TJ) 2016 Average Delivery Source: emstradepoint 4

5 PRICES ORDERS Market behaviour has matured over the course of 2016, and is exhibiting good price discovery prices averaged $5.19/GJ, a decrease of $0.30/GJ from The distortionary impact of Market-based balancing (MBB) has decreased substantially since it was first introduced, and the buy/sell spread continues to converge on the non-balancing market price. Price volatility was the highest in the second half of the year with Q3 and Q4 price standard deviation ranging between $ /GJ, vs $ /GJ in the first half of the year. However, this is largely due to lighter trading in the second half of the year rather than a genuine increase in price volatility. Order volumes increased in 2016, indicating market liquidity is growing. Total order volumes were up 46% year on year to 30.2 PJ. For every 10 GJ offered on the supply side there was approximately 9 GJ bid on the demand side. This is quite different from 2015 where demand outweighed supply (the ratio was 10 GJ offered to 12 GJ bid). The high volume of offers compared with bids shows the market was, generally, long. This is supported by the soft fundamentals (see page 8 for more information) The conversion rate of orders in 2016 was approximately ~18% which is an increase of ~2% compared to FRMI Monthly Index MIN $3.12/GJ MAX $6.04/GJ MARKET LOW $1.20/GJ q43% YoY FRQI Quarterly Index MIN $3.92/GJ MAX $5.66/GJ MARKET HIGH $7.69/GJ q62% YoY Fig. 5: Daily Quoted VWAP PRICE PER GJ $12.00 $10.00 $8.00 $6.00 $4.00 $2.00 $- Jan-16 Apr-16 Jul-16 Oct-16 Bid VWAP Offer VWAP Fig. 6: Average Daily Delivered Prices Fig. 7: Daily Quoted Volumes PRICE PER GJ $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Jan-16 Apr-16 Jul-16 Oct-16 FRMI FRQI Daily VWAP Source: emstradepoint TJ Jan-16 Apr-16 Jul-16 Oct-16 All bid quotes All offer quotes 5

6 2016 Trading Growth CONTINUED MARKET-BASED BALANCING Market-based balancing (MBB) completed its first full year in MBB was introduced in October 2015 to provide a market-based mechanism to reconcile imbalance positions on the Maui pipeline. MBB has had a dramatic impact on both the operation of the pipeline, and the emstradepoint intra-day market. Fig. 8: First Gas Trade Prices PRICE PER GJ $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 In late 2015 MBB had some teething issues, resulting in significant distortion to the market prices. However, upon the revision of the default rule, MBB has been gradually been improving. $2.00 $1.00 $- Jan-16 Apr-16 Jul-16 Oct-16 VWAP First Gas sales VWAP First Gas purchases VWAP Non-First non-fg transactions Gas transations The Gas Industry Company published a report confirming pipeline imbalance positions have reduced on average. Market prices for balancing transaction have been converging on the prevailing market price for natural gas. Source: emstradepoint, BGIX Fig. 9: First Gas Trade Volumes In the last quarter of First Gas engaged with ICAP in order to improve the prices received for balancing transactions even further. Fig 8 (right) shows the improvements in balancing transaction pricing in FIRST GAS TRADED VOLUME (TJ) Jan-16 Apr-16 Jul-16 Oct NON-FG TRADED VOLUME (TJ) Non-First Gas transations First Gas Sales First Gas Purchases 6

7 BROKER FACILITATED LIQUIDITY AND THE 2017 FORWARD CURVE The presence of an independent broker (ICAP) has facilitated a number of key improvements to the exchange. Trading in the 2017 day ahead market (daily, weekly and monthly strips) has provided a valuable forward price signal for the market. Improvements in the pricing of balancing (and fuel gas) transactions; First Gas transactions are now converging on the non-first Gas market price. This means that MBB is operating in the way it was designed (ie. the balancing transactions are similar to those of non-balancing transactions), and balancing transactions avoid distorting pricing on the exchange and the associated metrics (ie. the Frankley Road indices). We have seen large volumes of trading in products out to September Brokered day ahead trading since January 2017 has totalled approximately 575 TJ. Fig. 10: Trade Volume by Trade Date and Product Facilitated an increased rate of price discovery and activity in forward products. The broker builds liquidity pools across all products on the exchange and enables the ability to use these liquidity pools to form matches faster, and across more products, than is observed on the exchange. TRADE VOLUME BY TRADE DATE (TJ) Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 On the day trading Forward product - weekly Forward product - daily Forward product - monthly As at 2 March 2017 Source: emstradepoint Fig. 11: 30-Day Rolling Average Price and Volume $ $5.50 $ PRICE PER GJ $4.50 $4.00 $ TJ $3.00 $ $2.00 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 0 Volume All-time VWAP Historic Forward 7

8 2016 Market Fundamentals 2016 proved to be a mixed year for New Zealand gas-related commodity markets. Domestic electricity prices remained flat and oil increased slightly over the year but still remains low. In contrast methanol prices increased sharply in the fourth quarter. Electricity price (referenced to the HLY2201 node) has declined across 2016 beginning at $72/MWh in January and finishing at a low of $47/MWh in December. These prices have reduced demand for gas-fired electricity generation, and put downward pressure on gas prices. Brent oil went from approximately USD 35/ barrel in January 2016 to USD 55/barrel prices were still low compared to pre-2015 prices. The market appears to be recovering from the sub USD 30/barrel prices observed at the end of 2015 and beginning of Fig. 12: Brent Crude & Methanex Asian Posted Contract Prices Brent Crude Oil (USD/barrel) $120 $500 $450 $100 $400 $80 $350 $300 $60 $250 $200 $40 $150 $20 $100 $50 $0 $0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Brent crude Methanol Source: Methanex, Bloomberg Methanol APCP price (USD/MT) Methanol Asian-Posted Contract Price (APCP) was below USD 300/MT for the first three quarters of 2016, but in Q4 the price recovered rapidly to USD 350/MT in December and is now listed at USD 500/MT (March 2017 APCP). Fig. 13: Average Electricity Price Electricity (per MWh) $80 $70 $60 $50 $40 $30 $20 $10 $0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 $10 $9 $8 $7 $6 $5 $4 $3 $2 $1 $0 Natural gas VWAP (per GJ) HLY2201 average price etp VWAP (RHS) Source: EMI, emstradepoint. 8

9 Fig. 14: Methanol Production Methanol (MT) Methanex has recovered from the operational issues they experienced throughout 2015 and early 2016 and have been producing at near capacity in Q2 through Q Q Q Q Q Methanol Production Lost Production Remaining capacity Source: Methanex Ahuroa gas storage facility showed significant flexibility in 2016 with the first half of the year increasing from 9.3 PJ to 10.9 PJ stored, and the second half of the year showing a net decline from 10.9 PJ to 10.1 PJ. Hydro storage remained high for most of 2016, with storage only dropping below the long term historical average in Q This excess of hydro storage has led to low prices observed in the electricity market. Fig. 15: Thermal Electricity Generation Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Gas generation (excl HLY 1-4) HLY 1-4 generation Source: EMI In the carbon market, NZUs were trading between $9-10/NZU in January 2016 (spot market). The spot price has since increased nearly ~100% and has been trading at ~$18/NZU since July Fig. 16: Carbon - NZU Spot Price NZU Spot Price $20 $18 $16 $14 $12 $10 $8 $6 $4 $2 $0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Source: Carbon Match 9

10 2016 News and Updates 2016 was a very busy year in the gas industry and emstradepoint the industry has undergone a number of developments, and emstradepoint has implemented a number of internal changes. INDUSTRY UPDATES Upstream and Transmission 2016 saw First Gas enter the industry as the largest natural gas Transmission and Distribution owner and operator in New Zealand, taking control of the Maui and Vector transmission networks, and the non-auckland Vector distribution networks. First Gas is a child company of Colonial First State Global Asset Management, and was formed following the purchase of the transmission and distribution assets in In September, First Gas, with the support of the Gas Industry Company, began a process that aims to replace the current Maui and Vector Pipeline Operating codes with a single new code. This process will take approximately months and will involve reviewing a vast array of technical and regulatory mechanisms. This is a great opportunity for the industry to develop and initiate innovation. Upstream activity has continued to be quiet with the exploration and production sector focussing on optimising exiting assets. Exploration permits awarded have declined sharply with only a single permit award in the 2016 block offer (219 km2 total acreage), down from 9 permits in 2015 (12,111 km2 total acreage) and 15 permits in 2014 (47,690 km2 total acreage). 10

11 Brokering and Downstream Fundamentals are expected to remain soft in the medium term. Oil prices are forecast to remain at or around 55 USD/barrel in 2017 and Electricity price indicators are low, with 2017 calendar year futures currently priced at approximately $59/MWh; 2018 calendar year futures are priced slightly higher at approximately $76/MWh. In August 2016 ICAP launched their natural gas brokerage service in the New Zealand wholesale gas market. ICAP provide an inter-dealer broker service to industry participants, and utilises the emstradepoint exchange to execute trades formed. The broker has proved to be an valuable source of liquidity, especially in the forward products (weekly and monthly strips). In April 2016, Genesis announced that they would be retaining the Huntly Rankine units until 2022, having previously stated they would be retired at the end of Shell announced in December 2015 that they would be reviewing their New Zealand assets, with a focus on large growth opportunities (a criterion that New Zealand does not meet at the global level). In August 2016, Shell announced that this review was still ongoing and there was nothing material to report. Sources: EIA short term energy outlook, Electricity Authority, NZX, Energy News. TECHNOLOGY UPDATES Exchange platform upgrades The exchange platform was enhanced in 2016, primarily to add functionality to accommodate the introduction of off-market trades formed via a brokerage. Off market trades (including brokered trades) are now highlighted on the trading board and listed in the CSV download so that they are easily identified. Following consultation, The Frankley Road Natural Gas Index and VWAP (volume weighted average price) calculations have been updated to include trades that are anonymously brokered in emstradepoint s market data. Trade confirmation s for off-market trades have been updated to include reference details. 11

12 MORE INFORMATION More information on emstradepoint, including market data and contracts, is available at (